Mumbai: The continuing depreciation of the rupee is expected to fuel inflation and push the headline number to 7.3 percent for FY13, making a reduction in interest rates for borrowers unlikely in the near term, an economic think-tank has said.

The Centre for Monitoring Indian Economy (CMIE) has upped its fiscal-end inflation target to 7.3 percent from the 6.7 percent and Reserve Bank's 6.5 percent, due to the slide in the rupee.

"Driven by the rupee depreciation, headline inflation is expected to go up to 7.3 percent in FY13 from our previous forecast of 6.7 percent," the CMIE said in a briefing.

Such a scenario reduces the possibility of a cut in interest rates anytime soon and hence, we cannot have easing in interest rates before the second half of the fiscal, it said.

"A CRR cut would be more effective (in transmission)," the agency recommended to the RBI.

In its mid-quarter policy review last week, RBI sounded hawkish, going back to its inflation management role after giving signals of easing due to the sharp dent in growth in its earlier policy announcements.

The rupee has been one of the worst performing currencies at present, having lost nearly 30 percent since last August due to a variety of reasons like fall in capital flows on concerns over the current account deficit.

It touched an all time low of 57.37 to the dollar during trading last Friday.

The CMIE forecasts the rupee to continue to trade in the 55-56 range versus the US dollar till the first fortnight of July, after which the fate of the currency hinges on the capital flows situation.

On consumer inflation, which found a mention in the recent RBI communication as an important indicator and also as a concern, CMIE said it will continue to remain at elevated levels due to rising food prices.

"We expect CPI inflation for industrial workers to rise by 8.1 percent in 2012-13. It was 8.5 percent in 2011-12," it said, adding the government is unlikely to meets its target of containing fiscal deficit at Rs 5.1 lakh crore or 5.1 percent of the GDP, and rise up to 5.4 percent on higher than- estimated-subsidy burden.

As against a stated objective to cap the subsidy burden to Rs 1.9 lakh crore, CMIE expects recent delays in diesel and petroleum products deregulation to push it up to Rs 2.3 lakh crore, hurting the fiscal deficit.

Against the budget estimate of Rs 43,580 crore, the subsidies on petroleum products alone will shoot up to Rs 65,000 crore, it said.

Political difficulties have been resulting in the continual delay of a rise, if not completely deregulation, in diesel and other petroleum products like LPG and kerosene.